Calif., NY Rank Worst in Business Tax Climates

The Tax Foundation has released its 2014 State Business Tax Climate Index.

Several states have moved in the rankings since last year. Texas dropped out of the top 10 for the first time, landing at No. 11, and Virginia and Kentucky both fell three places to #26 and #27, respectively. On the positive side, Arizona climbed five ranks to #22 and Kansas moved six spots to #20.

“The states that lost ground this year usually did so because they changed policy in a way that makes the tax code more complex, burdensome or economically harmful,” said Tax Foundation Economist Scott Drenkard. “By contrast, the states that improved did so because they are moving closer to a tax code that collects revenue without unnecessarily distorting business decisions. Their tax codes became more neutral.”

Now in its 10th edition, the State Business Tax Climate Index collects data on over a hundred tax provisions for each state and synthesizes them into a single, easy-to-use score. Then the states are compared against each other, so that each state’s ranking is relative to actual policies in place in other states around the country.

A state’s ranking can rise or fall significantly based not just on its own actions, but also on the changes or reforms made by other states, according to the Tax Foundation.

“The goal of the State Business Tax Climate Index is to start a conversation with policymakers about how their states fare against the rest of the country,” said Drenkard. “With this report, we’re asking: ‘how well is your tax code structured? Are businesses in your state spending too much time complying with onerous tax provisions? Are you double taxing things you shouldn’t?’”